A driver wishes to buy gasoline and have his car washed. He finds that the wash costs $2.5 when he buys 9 gallons at $1.10 each, but that if he buys 10 gallons, the car wash is free. Thus, the marginal cost (MC) of the tenth gallon to him is
In economics and finance, marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good. To calculate marginal cost, you will need to take the change in total cost divided by the change in total output.
So,we can write the following formula: MC= ((10*$1.10 + 0) – (9*$1.10 + $2.5))/(10-9) = ($11 - $12.4)/1 = -1.4